KEY POINTS:
Shares in Wellington Drive Technologies dived 12 per cent, 7 cents, to 50 cents today after a deal to raise $40 million of new capital with US company Source Vortex fell through.
While requesting a suspension of its shares WDT managed to scramble together a smaller alternative proposal.
It placed 30 million shares to Citicorp at 40 cents per share, the same price of proposed Vortex capital raising.
"Following notification by Source Vortex that a significant investor in Source Vortex failed to meet its settlement obligations, Source Vortex and Wellington have agreed to terminate their arrangements relating to the Source Vortex investment in Wellington," WDT said in a statement.
Two weeks ago, WDT, which makes energy efficient motors, was queried by New Zealand Exchange about an 11 per cent drop in its share price, following an article in the Sunday Star-Times about Source Vortex.
Then on November 16 the stock hit a record high of 62 cents after it said it had received a $1.8m order for its motors from the United States.
The Sunday paper said Source Vortex principal Michael Jude Lopitz was part of a California-based, multi-level marketing organisation called Life Force International, which markets dietary supplements and herbal remedies.
Mr Lopitz told the paper his own "wellness products" business, Organic Options, was the holding company for his Life Force activities.
Source Vortex is a special purpose entity created by Conscious Capital Fund for the investment. The other principal was Aubrey Hornsby.
An independent report on the WDT deal by Grant Samuel said the Source Vortex principals had a network in the US which would be useful for WDT to develop that market.
Under that deal, Source Vortex would have owned up to 40.35 per cent of WDT and hold two board positions.
On November 14, WDT issued a statement saying: "Directors consider the article's inferred conclusions to be wrong and the subject matter of the article not relevant."
Today's placement was to six existing institutional shareholders.
WDT said it would in the first half of next year make a discounted, renounceable, pro rata rights issue to all shareholders to raise between $10m and $15m.
"This will mean the company can be certain that it will have the amount of capital that is required to fulfil its accelerated plans."
WDT said the option of finding a US partner remained open and it was "confident that execution of its plans in North America will not be significantly affected over the medium term by this change in course of action".
WDT said it was told a third party investor who had agreed to contribute to 85 per cent of Source Vortex's $40m had not met its settlement obligations.
The new deal would "allow existing shareholders an opportunity to suffer less dilution in their holdings in WDT".
It said it carried out the alternative fund raising to "avoid the potential serious harm that could result due to the default by Source Vortex.
"WDT requires capital to fund its ongoing operation, to fund sales growth and wishes to avoid being in a 'tight' financial position for any length of time."
- NZPA